U.S. President Joe Biden has vetoed a bill aimed at overturning a contentious Securities and Exchange Commission (SEC) bulletin that establishes accounting standards for firms that custody cryptocurrency. The veto underscores the administration's commitment to safeguarding consumers and investors while fostering innovation within the crypto sector.

In a letter addressed to the U.S. House of Representatives, President Biden explained the rationale behind his decision. "My Administration will not support measures that jeopardize the well-being of consumers and investors," Biden stated. "Appropriate guardrails that protect consumers and investors are necessary to harness the potential benefits and opportunities of crypto-asset innovation."

Earlier this month, both the House and Senate voted in favor of repealing the SEC's Staff Accounting Bulletin No. 121 (SAB 121). The House passed the measure with a 228-182 vote, primarily supported by Republicans, though 21 Democrats also endorsed it. The Senate followed with a 60-38 vote, including support from several Democrats such as Senate Majority Leader Chuck Schumer.

However, overturning a presidential veto requires a two-thirds majority in both houses of Congress, a challenging threshold to meet.

The White House had previously indicated President Biden's intent to veto the measure in a "statement of administration policy" released last month. The statement emphasized that limiting the SEC's ability to maintain a robust financial regulatory framework for crypto-assets could lead to significant financial instability and market uncertainty.

This veto is not unprecedented for Biden, who has previously vetoed bipartisan measures. For instance, in May, he vetoed a measure to overturn a joint employer rule, which had also passed the Senate and House with bipartisan support.

SAB 121 has been a source of controversy over the past year, particularly within the crypto industry. Critics argue that the bulletin could inhibit banks from effectively safeguarding digital assets. The bulletin mandates that firms holding crypto for customers must record these holdings as liabilities on their balance sheets.

The SEC, however, maintains that SAB 121 is "non-binding staff guidance" designed to enhance investor disclosures. "Time and again, we have seen crypto firms fail and watched as their customers lined up at the bankruptcy court in hopes of getting what they thought was legally theirs," an SEC spokesperson stated last month. "We’ve also seen the risks to investors in firms that safeguard these assets when they are hidden off balance sheet. These disclosures provide investors important line of sight into the level of risk taken by crypto custodians."

As the debate over crypto regulation continues, the Biden administration's stance reflects a cautious approach to integrating crypto innovation within a secure and stable financial framework. The veto represents a significant moment in the ongoing discourse on how best to regulate the burgeoning crypto industry while ensuring the protection of consumers and investors.